Leasing: Remedy to Navigate Through Market Slowdown
By SMAS INDIA
10 April, 2020
The Automobile Sector in India is under severe crisis after experiencing nearly a decade of high growth. The sluggish demand, along with liquidity crisis, has only added to this stressful situation. And as the market continues to lose its appetite for demand, the situation is unlikely to improve in the near term; thus, auto majors are finding this going difficult and are now adjusting to the new normal.
While most automobile companies are constantly cutting down their production to reduce the inventory on factory premises and at dealerships, they are now focusing on the alternate markets to make up for the losses in the home market.
As per the report of The Society of Indian Automobile Manufacturers (SIAM)
Passenger Vehicle sales declined by 24.07% to 1.39 lakh units in August 2019 over last year. According to the reports, August 2019 was the 13th consecutive month since July 2018, when the automobile sales have declined.
As shared mobility is now becoming an intrinsic part of the urban mobility and a segment of buyers are staying away from owning cars, auto manufacturers are now seen investing in shared mobility and offering leasing options to attract buyers.
Read on to explore the significance of auto leasing Indiain this market slowdown.
Vehicle Leasing in the Market Slowdown
Various automobile companies have started offering vehicle leasing services in India to its retail customers. In a vehicle leasing scheme, corporate car leasing companies like SMAS India give you a car on lease for a certain period of time. Unlike a car loan, where the customers don’t have to worry about the huge down payment.
Under the car leasing, the entire maintenance, insurance and registration cost is usually borne by the vehicle leasing companies. Here the minimum lock-in period of leasing is two years and maximum it can be up to five years. So in vehicle leasing, instead of paying for the vehicle, the customer only pays for its usage value which is based on the pre-decided tenure and kilometres.
As we have seen above that auto sales in India continues to decline. And the latest numbers released by SIAM shows that there is a continuous slump in the automobile industry. The decline in the sale of cars and SUVs was mainly due to factors such as a slowdown in the economy, tight liquidity, and job losses; all these kept the buyers out of the market. Also, it has been observed that despite new launches, buyers seemed to remain out of the market.
Vehicle leasing industry, on the hand, was seen flourishing. According to a newspaper report, “The lease market is currently worth Rs 1,500 crore & is growing at a 15- 20 CAGR. And as per the luxury car companies, currently, personal and corporate lease segment comprises of approximately 15 per cent of their total sales.”
However, vehicle leasing might have a penetration of less than one per cent in India. But with young and millennial consumers who prefer ride-sharing services, the market has a promising future. The industry analysts say that there has been a shift in the mindset of people and because of this car leasing option and it is expected to gain popularity in the future.
Choosing Vehicle Leasing over Buying
When you buy a new car, you need to pay for the entire price of the vehicle using cash, car loan, the proceeds of a trade-in, or a combination of all three. But when on the other hand you lease a car, you just need to pay for the difference between the car’s price and its expected value at the end of the lease, plus interest and fees. For example, you find the perfect SUV with Rs 30 lakh price tag, and it is expected to be worth Rs 20 lakh after three years. So, if you lease this SUV, you just have to pay for the Rs 10 Lakh in expected depreciation, plus the interest and fees. On the other hand, if you buy it, you have to pay the full amount, i.e. Rs 30 lakhs plus interest and fees.
When the lease period ends, you can return the vehicle to the vehicle leasing company in India from which you got it. There may or may not be some lease-end costs, depending upon how much you’ve paid as security deposit while signing the lease. You will then have the option of purchasing your leased vehicle, lease a new vehicle, or just walk away. Thus, leasing a car is a better option than buying it.
The automobile industry in India is currently undergoing major revolutions at both- supply as well as the demand side. While self-driving cars and other auto variants are bringing new challenges and giving fierce competition to the market players, the shifts in ownership patterns are also not easy to adapt to. But the winds of change have already surfaced, and automakers have started working hard to surf the rising waves. In view of this, market awareness and readiness to lease might just prove to be a game-changer for survival in this scenario.